Residential Market Flooring Trends - Nov 2011

When the housing market collapsed, it yielded changes not only in how homes are valued but also in how they are constructed and designed. Many of today’s customers are more concerned with efficiency, prioritizing what they need over what they want, and choosing materials that offer durability. In their flooring, renters and buyers in the multi-family, specification (spec) built and customer built markets are seeking finishes that promise durability and convey quality. As the values of renters and buyers change, it behooves flooring contractors and retailers to understand the emerging trends.

Because of the fact that credit has tightened and foreclosures are widespread, the multi-family market is surging; rent prices are on the rise, and, with buyers less willing to pull the trigger on a purchase (especially with the uncertainty of when home prices will start to reverse their decline), continued growth is anticipated. As you might expect, a renter who was once a homeowner or one who is delaying their first home purchase doesn’t want an apartment that looks like a college dorm room. They want an apartment that feels like a comfortable home with quality finishes.

The spec built home market also suffered in the recession. Spec homes are those that are constructed by a builder who intends to sell the property during the construction process or after the home is completed; in this situation, the builder makes the decisions about the footprint and major features of the home, and the buyer (if they are involved in the process early enough) may choose finishes and upgrades. In 2005, homes that were built for sale (spec built) made up 79.2% of the market; by 2009 that number fell to 66.4%, according to the National Association of Home Builders (NAHB).

Whereas having an inventory of homes built or slated to be built seemed like an asset (an assurance of money in your pocket) before the market collapse, builders today may be more hesitant to build a property that will drain liquid capital until it is sold, which may account for why spec homes are making up a smaller portion of the market. In the custom built home market, a home is constructed according to a buyer’s specifications, often on their own lot. In this situation, the owner has control over both the major elements of footprint and design as well as over the finishes (inside and out). The number of contractor-built custom homes rose 7.2% (from 11.4% to 18.6%) between 2005 and 2009, says the NAHB.

In terms of flooring trends, renters and buyers in all of these markets share a preference: an increasing partiality for hard surface flooring, and the hard surface of choice is wood (or a wood look). Across all the markets, darker tones are preferred over naturals in hard surface flooring, and wider widths are desirable as well.

There is a widespread belief that hard surface flooring is healthier than carpet because it doesn’t trap allergens (soft surface manufacturers dispute this claim), and many builders and retailers in the industry report that this plays a significant role in why customers prefer hard surface flooring. For this reason and others, carpet is often being relegated to bedrooms or skipped altogether.

While only two of the builders that we spoke with say that they are building smaller homes than they were before the recession, the NAHB reports that, across the nation, square footage is decreasing, from an average of 2,253 square feet in 2005 to 2,100 square feet in 2009. Of course, after a recession it only makes sense that customers feel compelled to cut back and reject the idea of excess, at least for a time. Smaller square footage means reduced heating and electric costs, after all, so the savings aren’t felt only in the purchase of a home but on a monthly basis as well.

With regard to sustainability, it might seem counterintuitive that builders are showing an increasing interest in going green amid the housing slump, but Nate Kredich, vice president of residential market development with the U.S. Green Building Council, reports that that is exactly what’s happening, because builders and developers see it as a means of establishing a competitive edge against the glut of homes already on the market. “They have a rich opportunity to build something better,” says Kredich, “to build a very high quality, highly energy efficient, water efficient home.” He points out that KB Homes, traditionally a value builder, just earned LEED Platinum certification for a new multi-family development in Los Angeles. “You would never have seen that three years ago,” Kredich says.

CASE STUDY: MULTI-FAMILY HOUSINGPhillips Development builds and leases Class A apartments in North Carolina, Texas and Florida. The company’s units rent for between $800/month and $1,500/month—or about $1.00 to $1.10 per square foot per month, depending on the floor plan. Phillips’ properties are aimed at young professionals and are outfitted with amenities like granite countertops, stainless steel kitchen appliances and large 42” cabinets that give them a higher end look and feel.

To complement that upscale look, Phillips prefers to use wood-look vinyl plank flooring throughout its properties. In fact, the company did a market study that revealed that it could get an extra 5% to 15% in rent by installing vinyl throughout its units. Though vinyl does cost about 60% more up front than carpet ($1.24 for base grade carpet versus $1.98 for vinyl plank), it does not have to be ripped out and replaced between tenants as carpet does. And damaged spots can be replaced plank by plank, which saves both material and labor costs.

However, there is one major drawback to using luxury vinyl tile in apartment units—sound transfer. Tenants on the lower floors can hear movement on the floor above, and this is the biggest source of tenant complaints for Phillips. The company has looked into engineered hardwood since it would better hamper sound transfer, but the material is cost prohibitive for Phillips’ purposes.

Beige cut pile carpet is used in Phillips’ units on a limited basis; when it is used, it is installed in bedrooms. Phillips is interested in transitioning from broadloom to carpet tile because of the ease of replacement tile provides. The company has determined that, in spite of an increased up front cost, carpet tile is a financially beneficial investment after four years installed.

Phillips’ apartments have not decreased in square footage during the recession, unlike some single-family homes, but the company has changed the units somewhat—opening up the kitchen to the living area to bring more light and life to the spaces.

Flooring is one of the first selections that Phillips makes in the development process. The company considers maintenance and ease of replacement its top priority in flooring selection, but price and sustainability are significant factors as well.

Phillips reports that its leasing outlook is fantastic at present. On its new Phillips Swift Creek property in Cary, North Carolina, the company had 22 pre-leases signed, even before it received the certificate of occupancy.

CASE STUDY: ENTRY LEVEL SPEC BUILT SINGLE FAMILY HOMESPulte is a national spec builder that constructs homes ranging from under $100,000 to over $1,000,000. The company also develops active adult communities, townhomes and a broad range of other housing solutions.

Pulte reports that the trends in its entry level homes are similar to what it sees across the board. Flooring is the number one feature that customers upgrade, even at the entry level. And when these customers upgrade, they want hard surface flooring: hardwood, wood-look vinyl and ceramic tile. Pulte customers are making the switch to hard surfaces for several reasons: because they believe that hard surfaces are better for allergy sufferers than soft surfaces; because they believe that they are cleaner than soft surfaces; and because they are simply more desirable design wise.

But there are additional factors promoting hard surfaces as well. First of all, wood-look products like vinyl and laminate have improved steadily through the years, so now customers can get a beautiful wood-look floor that is realistic, durable and affordable. Additionally, with today’s open floor plans, it seems logical to extend one floorcovering through all the living areas of the first floor. And often, Pulte’s buyers continue with hard surface through the master suite, using carpet only in the additional bedrooms.

Great rooms are popular among Pulte’s customers, and the company believes that the trend has accelerated, in part because movable technology like laptops and tablets have made it possible to work anywhere. Today’s homeowners aren’t tied down to a big desktop in a home office; they can work as easily in the comfort of a great room as they can in a designated workspace.

This has also impacted the size of the home. Pulte reminds its customers that they no longer have to account for big entertainment centers to hold giant televisions—today, most people have flat screens installed directly on the wall—so great rooms and master suites don’t need to be as large as they once did.

Engineered hardwood and wood-look vinyl and laminate options are gaining acceptance among Pulte’s customers. In general, they are favoring wider planks (up to 6”) and are often choosing handscraped looks now that those are available at lower price points. Colors run the gamut, from taupe to charcoals to espresso. Pulte reports that some of its customers are choosing bamboo, now that the product is more readily available and the looks are varying due to new treatments.

Though ceramic tile is often slightly out of financial reach for the entry level customer, Pulte reports that when it is chosen as an upgrade, the larger formats and more realistic stone looks are winning out.

CASE STUDY: HIGH END SPEC BUILT SINGLE FAMILY HOMESToll Brothers builds spec homes for the luxury market. Currently, the company builds in 19 states, and the average price for a Toll Brothers’ home is $570,000 nationally.

Because Toll Brothers serves an age-restricted market—customers who are financially mature and, therefore, often mature in age, generally making their fourth or fifth home purchase—the company’s homes have a specific footprint by nature: the first floor generally contains all the living space as well as the two main bedrooms, and the second floor houses the guest bedrooms. Nationally, the average Toll Brothers home has square footage in the mid 3,000s.

Flooring is the most upgraded item in a Toll Brothers home. In fact, only 35% of customers choose the company’s standard offering. Many Toll Brothers customers often upgrade the hardwood from the standard oak to either maple or hickory.

Across all the markets it serves, Toll Brothers is seeing a preference for hard surface flooring and darker interior tones. The company notes an increasing demand for handscraped looks among its customers, as well as wider format boards. In solid hardwood, 33/4” to 4” widths are favored, and in engineered hardwood boards often go even wider. Medium browns to near blacks are the preferred tones. The company installs almost no natural tone woods.

Toll Brothers reports that it is seeing some significant trends in the Florida and Northeast markets. In the hot climate of Florida, cool tile has always been the top choice for the first floor and living spaces, and it continues to dominate in these areas, especially in larger formats (18”x18” and larger). Frequently, however, Floridians are choosing to upgrade from ceramic tile to natural stone in their living spaces. On the second floor, things are changing more significantly. Tile and carpet, which once dominated these areas, are being replaced by engineered wood.

In the Northeast, hardwood dominates, quite a change from the past when carpet was the flooring of choice in this colder region. Soft surface flooring is now generally restricted to the bedrooms, and tile is used in the bathrooms.

Toll Brothers has considered using the newer laminate and vinyl products, but there is still the perception among its upper end buyers that these flooring types aren’t high quality. Occasionally, a customer with large dogs will choose one of these products for its performance attributes.

On average, the build cycle for a Toll Brothers home is nine months, and flooring is chosen within the first 60 to 90 days from the agreement of sale. The company reports that the number one priority of its customers is style; they want to make their home as beautiful as they can with the budget that they have, and they feel that flooring upgrades go a long way toward achieving that.

CASE STUDY: CUSTOM BUILT SINGLE FAMILY HOMESSandlin Custom Homes of Dallas/Fort Worth is a second-generation family business that builds both custom and spec homes. The custom homes range from $400,000 to $1,000,000. The company divides its spec homes into three market segments: cornerstone ($180,000 to $199,000), heritage ($200,000 to $300,000), and signature homes ($300,000 to $500,000). The spec homes range from $56.00 to $112.00 per square foot.

Sandlin is seeing activity in the regions in which it works—particularly in the $200,000 to $300,000 price range—because the low interest rates are incentivizing people to buy. It is also seeing an uptick in the $325,000 to $450,000 range. The company notes a decrease in sales in the first time buyer market now that the first time homebuyer tax credits have expired.

Within Sandlin’s market, the footprints of homes have been decreasing since 2009. The McMansions of the 1990s are being replaced with smaller, more efficient versions of the same homes. Sandlin’s customers aren’t seeking a lesser quality home—they want high quality custom details—just a smaller home. One of the ways that customers are achieving that goal is by creating multi-use rooms or flex space, for instance, great rooms that also function as media rooms or offices.

As with the multi-family and spec home markets, Sandlin’s customers are choosing hard surfaces over soft. Sandlin says that only 50% of its customers use soft surface products in their bedrooms. The company says that its customers are making this choice based, first and foremost, on their perception that a hard surface is more durable. In addition, carpet is often believed to hold allergens and to be less clean than hard surface flooring, which is influential in Sandlin’s customer’s decisions.

On the hard surface side, hardwood is the material of choice, and the use of engineered hardwood is on the rise. In fact, over 40% of clients choose engineered wood for their kitchen. Clients like engineered wood because the product that is installed is more consistent with the product that they choose in the design center—there is not as much variation in color and design as there is with solid hardwood. When customers do choose solid wood, they always choose a handscraped style, and most of the engineered wood that the company installs is in character looks as well. The most common hardwood choice overall is a dark stained 5” plank.

Some of Sandlin’s clients choose ceramic tile for living spaces because it is more durable than carpet and because, when cleaning is factored in, hard surface flooring becomes a more attractive value proposition. They also like the fact that ceramic tile can be used to create customized patterns and styles. Overall, flooring colors remain on the neutral to dark side for hard surfaces.

When soft surface flooring is desired, fluffy, soft carpet with a longer fiber is the top choice among Sandlin’s clients, and frieze is the top seller.

Schumacher Homes, a family run business, builds homes that range from 800 square feet to 8,000 square feet with prices from the high $50,000s to over $1,000,000. Schumacher offers house plans that customers can use and customize, but it also builds wholly custom homes.

Schumacher has a unique perspective on the market, since it builds at such a broad range of price points. Like Pulte, the company says that it sees the same trends at the low and high ends of the market. Schumacher’s customers see flooring as a good place to invest, so, even at the lower end, they want to upgrade to hard surfaces.

Schumacher, which builds in 14 states, has been offering plans with less square footage to accommodate buyers who seek efficiency, but so far it hasn’t seen a trend in that direction. It does, however, see a trend toward buyers wanting square footage that makes more sense—eschewing formal living and dining areas in favor of space that they will use on a daily basis. They are looking for casual, more comfortable shared space. For instance, Schumacher often builds great rooms with an adjoining office nook that can be closed off from the living area. While parents are cooking dinner, kids can do their homework in the office space within earshot of mom and dad, and, when the office isn’t in use, it can be closed off from the rest of the room, which is a bonus since office spaces generally aren’t attractive (or tidy).

In addition, the company says that homes are being built to accommodate multi-generational living with, for instance, dual master suites and multiple entrances. More adult children are moving back in with their parents and older parents are cohabitating with their children as a result of the challenges of the economy, and homes are reflecting these new arrangements.

Schumacher’s customers are using more wood in their homes. Distressed and handscraped looks are popular, in part because they complement that casual living style that is trending. Mid-range to dark colors are preferred in hard surfaces. When customers are building a home with Schumacher, they make all their choices—from flooring to shingles to countertops—up front, before construction begins.

Schumacher customers often still choose to install carpeting in the bedrooms. While colors are still neutral on these surfaces, they are often selecting carpet with pattern and texture or a multi-tonal look.

Schumacher’s customers value durability in their flooring above all else, since flooring takes so much use and abuse. But the company believes that its customers see flooring as more of a fashion element than they ever have before. The company regularly tells its customers that flooring is a major element in creating a look in a home.

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